Rally Loses Steam in February. After a sharp rally in January, February delivered a more moderate performance. Both equities and bonds declined, and country risk is once again approaching 600 bps. Although last week the Treasury successfully debuted the new Bonar 2027 and the BCRA continued accumulating reserves in the official FX market, these efforts have not yet proven sufficient to reduce country risk—a key factor for Argentina’s return to international capital markets and its ability to meet 2026 maturities. The positive note came from interest rates, which eased during the past week as the Treasury prioritized system liquidity in its latest auction amid still-weak economic activity. This compression in yields supported the local currency curve, while at the same time discouraging carry trade strategies and helping consolidate a floor for the exchange rate. This week’s focus will be on FX dynamics and whether the exchange rate can remain stable despite sustained BCRA purchases and lower rates. Attention will also center on the first private estimates of February inflation—the market has revised projections upward, anticipating a figure similar to January’s—as well as tax revenue data. The REM survey and January activity indicators for key sectors such as industry and construction will also be released.

Labor Reform Approved. The labor reform was finally approved by Congress and is set to become law after the Senate passed the bill last Friday with 42 votes in favor, 28 against, and 2 abstentions. The initiative had already received approval from the Lower House, albeit with significant modifications (including the removal of Article 44 on medical leave). The Executive Branch must now promulgate the law and publish it in the Official Gazette within up to 10 business days before it formally takes effect. Among its most significant changes, the law introduces greater flexibility in hiring and dismissal rules, modifies the severance calculation base, incentivizes formal employment, and alters certain aspects of labor courts. Labor unions have already announced plans to challenge the law in court on constitutional grounds.

Activity Rebounds but Remains Weak. The December 2025 EMAE showed a 3.5% y/y increase and a 1.8% s.a. m/m expansion. As a result, economic activity grew 4.4% in full-year 2025. However, the recovery has been highly uneven across sectors, with strong contributions from agriculture (+32.2% y/y), fishing (+18.3% y/y), and financial intermediation (+14.1% y/y). In contrast, the most affected sectors were manufacturing (-3.9% y/y), hotels and restaurants (-1.5% y/y), and wholesale and retail trade including repairs (-1.3% y/y).

Stronger Agriculture and Lower Imports Improve the FX Balance. As noted in previous reports, in January the BCRA posted net purchases of USD 1,158 M in the FX market, while the National Treasury purchased USD 265 M. Of the BCRA’s total, USD 548 M came from net supply by the non-financial private sector, with the remainder from the financial sector. Focusing on private sector transactions, the result marks a reversal from the prior two months, when net FX demand averaged USD 600 M. This shift was mainly driven by an improvement in the settled trade balance, which posted a surplus of just over USD 2,000 M in January versus an average of USD 500 M in December and November. The improvement reflected a combination of higher exports (USD 6,800 M vs. USD 5,500 M) and lower imports (USD 4,800 M vs. USD 5,100 M), largely explained by stronger agricultural liquidation (USD 2,000 M in January versus USD 700 M in prior months). This more than offset a wider services deficit and a deterioration in the financial account, which turned negative again as demand for external assets remained elevated (USD 2,700 M), more than offsetting inflows from financial loans.

The BCRA Continues Buying. In the last week of February, the BCRA purchased USD 300 M (USD 60 M per day), slowing from the previous week’s pace (USD 107 M per day). Even so, February net purchases totaled USD 1,555 M, accelerating relative to January’s USD 1,158 M. Notably, the stronger pace of purchases occurred despite lower agricultural liquidation (USD 1,300 M in February vs. nearly USD 2,200 M in January). We estimate that the greater net FX supply likely stemmed from a further increase in the trade surplus due to weak imports and higher financial dollar inflows, either via corporate foreign-currency debt issuance or greater bank participation, likely linked to carry trade dynamics. Thus, in the first two months of the year, net purchases reached USD 2,713 M, a solid outcome compared to recent months, though well below the USD 3,600 M recorded in the same period last year.

Reserves Decline. Despite FX market purchases and an additional USD 180 M contribution, gross international reserves fell by USD 704 M in the last week, mainly due to Bopreal maturities and the seasonal decline in FX reserve requirements. Gross reserves closed the month at USD 45,560 M, while net reserves remain negative at around USD 19,800 M (per IMF definition).In February, gross reserves increased by USD 1.57 M, and year-to-date in 2026 they are up USD 4,392 M, although net reserves declined by USD 3,100 M due to sovereign debt payments.

The Exchange Rate Finds a Floor. The official exchange rate rose 1.8% over the week, closing at ARS 1,408.97. However, it declined 2.7% over the month and currently stands 14.1% below the upper band ceiling. The weekly increase occurred after the Treasury prioritized liquidity in its latest auction, compressing yields and discouraging carry trade strategies. Financial FX rates rose 2.7% (MEP) and 2.3% (CCL), closing at ARS 1,426.2 and ARS 1,469.9, respectively, while the swap spread remains elevated at 3.1%. Pressure on the exchange rate was also reflected in FX futures, though more moderately, with contracts rising 0.2%, driven by shorter tenors (+0.6%) while longer maturities fell 0.2%. Futures price in an implied monthly depreciation of around 1.9%–2.1%, with implied rates at approximately 24%–28% NAR.

Treasury Issues Bonar 2027. With no concrete developments regarding a return to international capital markets and leveraging ample domestic dollar liquidity from the tax amnesty program, the Treasury placed USD 250 M of a new dollar-denominated bond (AO27) maturing in October next year. This issuance forms part of a USD 2,000 M financing program aimed at repaying Bonares and Globales due in July. The new Bonar was issued at a 5.89% YTM, equivalent to a cut-off price of ARS 100.45 (per 100 face value), and tightened to 5.77% YTM in secondary market trading. Should this dynamic persist in upcoming biweekly auctions, the strategy of securing hard-currency financing through these instruments could reduce the Treasury’s need to obtain net peso financing to subsequently purchase FX from the BCRA for foreign-currency debt repayments.

Treasury Prioritizes Liquidity. After absorbing ARS 1.7 trillion at elevated interest rates in the first February auction, the Treasury achieved a 93% rollover in the latest auction, against ARS 7.2 trillion in maturities, injecting nearly ARS 0.5 trillion into the system. No fixed-rate instruments were offered, and the Treasury prioritized maintaining higher liquidity amid strained rates, avoiding additional pressure on still-weak economic activity. Consequently, CER-linked bonds accounted for nearly 98% of total placements, with yields slightly above the market curve, while dollar-linked bonds saw limited demand: ARS 0.15 trillion of TZV27 was placed, and TZV28 received no bids.

Rates Ease. ARS-denominated debt posted a solid week in nominal terms, although performance was negative when measured in hard currency given the FX move. Overnight rates declined relative to the previous Friday: the one-day repo (caución) closed at 20.9% NAR and the Repo at 20.3% NAR, down from levels near 35% NAR at the beginning of the month. The compression in rates was also reflected in the short end of the fixed-rate curve, which tightened to 2.5% EMR from 2.8% EMR the week before. In hard-currency terms, Lecaps declined 0.6% over the week. Dollar-linked bonds fell 0.4%; at current prices, they yield devaluation +4% on average and price in a 3.5% depreciation through April 2026. CER bonds dropped 1.2%; at these levels, they yield CER +5% in the 2026 segment and CER +7.6% in the longer tenors, while implying inflation of 2% m/m between February and April and 24.5% accumulated in 2026, below our projections. Finally, dual bonds eased 1.1% on the week and currently offer a spread of between 2.2% and 4.4% over the Tamar rate.

Country Risk Rebounds. Sovereign bonds declined 2.3% over the week, closing February down 1.9%, while still posting a 1.7% gain year-to-date (following a 3.7% increase in January, when country risk reached its lowest level under the Milei administration). Within the Bonares curve, AL35 fell 2.9% during the month, while among the Globales, GD35 lost 2.6%. In contrast, AL29 and AN29 gained 0.9% and 0.2%, respectively. Country risk closed at 570 bps, widening the spread versus EMBI Latam to 283 bps (EMBI Latam +79 bps). The weakness occurred despite ongoing FX purchases by the BCRA and recent legislative progress. At current levels, Bonares yield 8.5%–9.5% in the short end and 9.6%–10.1% in the long end, reflecting a mildly positive slope. Globales offer 7.4% in the short end and 9.4% in the long end, exhibiting a steeper curve. The legislative spread between AL30 and GD30 widened again to 3.6%, elevated for a country risk level of 570 bps. In line with sovereign performance, Bopreal bonds fell 0.3% on the week and 1.3% in February, although they remain up 1.3% year-to-date. The largest declines were seen in Series 3 (-2.6%) and Series 1A (-1.6%), partially offset by gains in Series 1C (+0.7%). The Bopreal curve yields between 4.2% and 8.2%, below sovereign levels. Unlike sovereigns and BCRA debt, sub-sovereign bonds declined 0.6% over the week but ended February up 0.1%, accumulating a 3.0% gain year-to-date, making them the best-performing segment. In the month, Córdoba 2029, Entre Ríos 2028, and Jujuy 2027 rose 0.8%, while Buenos Aires 2027 fell 2.4%. Entre Ríos issued USD 300 M due 2033 at 9.875% to repurchase its 2028 bonds. The pricing came in line with the sovereign curve, although the province had initially targeted USD 500 M. The provincial curve yields between 6.1% and 11.7%. Finally, corporate bonds gained 0.2% on the week and 0.5% in February (+1.5% year-to-date), driven mainly by energy and utilities (YPF 2031 +0.7%; Edenor 2030 +1.5%). Yields range between 6.0% and 9.5% under foreign law and 4.5%–8.0% in the local market.

Marked Sell-Off in the Merval. The Merval fell 13.7% in pesos and 10.3% in CCL dollar terms during the week, closing at USD 1,798. As a result, equities ended February down 10.3% in dollar terms, reflecting a sharp sell-off in Argentine assets and a fully decoupled performance relative to the Latam index, which rose 3.3% during the month. Year-to-date in 2026, the Merval is down 10.2%. The February decline was broad-based across sectors, led by banks, utilities, and materials, which dropped 12%, 13%, and 21%, respectively. Within the index, the most heavily hit stocks were COME (-41.6%), Edenor (-31.3%), and Holcim (-28.8%). In contrast, ByMA rose 7.6% and Transener gained 4.0%. As for Argentine equities listed on the New York Stock Exchange, they declined 6.0% over the week, ending February down 13.7% and accumulating a 9.5% loss year-to-date. The largest declines were recorded by Bioceres, Globant, and BBVA, which fell between 25% and 33%. Ternium was the only stock to post a positive return.

WEEK AHEAD:

• With the labor reform approved, the market will closely assess President Milei’s address to Congress at the opening of Ordinary Sessions, particularly regarding any new bills the Executive may submit, now that it enjoys significantly broader support in both chambers.
• On Monday, February tax revenue data will be released, following a deterioration in the previous month.
• On Thursday, the BCRA will publish the Market Expectations Survey (REM), including the first private estimates for inflation and the exchange rate.
• Equally relevant will be the release of January activity indicators for mining, fishing, construction, and manufacturing production.